Chapter 02 · Getting started in the stock market
What a share represents
A share is a slice of ownership, not a coupon and not a lottery ticket. This chapter separates what you own, what you do not own, and which pieces of paper actually record the claim.
The claim, stated plainly
If a company has 10 crore shares and you hold 500, you own 500 divided by 10 crore of the residual business. You do not own the building in proportion to the floor area you imagine. You own that fraction of whatever is left after the company meets its obligations. If the business is worth more next year because it earned and reinvested profit, your fraction is a claim on a larger pie. If it issues 2 crore new shares to fund a project, your fraction shrinks unless you buy your portion of the new shares.
This is why share count matters as much as profit. A company can report higher profit and still leave each share with less, if the share count rose faster than the profit. Read profit beside the number of shares, not as a headline on its own.
What a shareholder does not get
You do not get a say in Tuesday’s pricing, hiring, or the colour of the delivery vans. Company law and the listing rules give you a vote on a short list of large decisions: who sits on the board, whether new shares may be issued, whether the company may be merged or wound up, and the auditor. Day-to-day control sits with the board and the managers. A 500-share holding is an economic claim with a thin political voice.
You also do not get a guaranteed dividend. The board proposes a dividend if it chooses, and shareholders approve it. A company can earn a profit and pay nothing, because it would rather build a plant. That can be the right choice. It can also be an excuse. The annual report is where you look for which one it is.
Face value, book value, and the price on the screen
These three numbers are constantly mixed up, and they answer different questions.
| Number | What it answers | Typical mistake |
|---|---|---|
| Face value | The nominal amount printed on the share when it was created. In India it is often ₹1, ₹2, ₹5, or ₹10. | Treating a ₹10 face value as a cheap share and a ₹1 face value as an expensive one. |
| Book value | Accounting equity divided by the number of shares. Roughly, assets minus liabilities, per share, using accounting rules. | Assuming the business could be sold tomorrow for book value. Brands, leases, and obsolete stock rarely fetch the figure in the ledger. |
| Market price | The latest trade. | Assuming it equals what the business is worth, or that it will return to book value on a schedule. |
A share with a face value of ₹1 trading at ₹840 is not ‘840 times costly’ in any useful sense. The face value is a historical label used for dividends (a 200% dividend on a ₹1 face is ₹2 a share) and for some corporate actions. Compare the market price with earnings, cash, and assets, not with the number printed on a certificate that no longer exists.
How the claim is held in India
You almost never hold a paper certificate. A depository — NSDL or CDSL — keeps an electronic record that the shares belong to your demat account. Your depository participant, often the same firm as your broker, is the door into that record. The company’s registrar maintains the list of holders for dividends and corporate actions.
If you buy on Monday and the market settles on a T+1 cycle, the shares are credited after settlement, not at the instant the order fills. Until then you have a contract, not the shares. That delay is why a sell order the same afternoon is a different product — an intraday trade — from a delivery purchase you intend to own.
Corporate actions change the slice, not the story
A bonus issue gives you more shares and cuts the price so the total value is unchanged at the moment of the issue. A split does the same with a different arithmetic. A dividend moves cash out of the company and into your bank, and the share price typically adjusts down by about the dividend on the day it goes ex-dividend. A rights issue offers you new shares, usually at a discount, and if you ignore it your fraction of the company falls.
None of these is automatically good news. A bonus is not a gift of value. A rights issue is a request for more of your money. Read what the company will do with the cash, and what happens to your ownership if you do not participate.
What to remember
- You own a fraction of the residual business, measured by your shares divided by all shares.
- Profit per share can fall even when total profit rises, if the company issued more shares.
- Face value is a label. Book value is an accounting leftover. Market price is the latest trade.
- In India the claim lives in a demat account at NSDL or CDSL, and delivery arrives through settlement, not at the click.
- Bonus, split, dividend, and rights change the slice or move cash. They do not, by themselves, make the business better.